The FBR may be setting its sights on Pakistan’s local textile makers which it thinks don’t pay enough taxes.
“According to our estimates, local textile sales are worth Rs1,200 billion, but the taxes from this sector are only Rs6 billion to Rs8 billion, which is not acceptable,” Adviser to the Prime Minister on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh said during his post-budget conference in Islamabad on Wednesday.
The government says these manufacturers are a “big sector” that can contribute to the federal tax collection. The government has a target of collecting Rs5,555 billion for fiscal year 2019-20.
The PM’s finance adviser said textile makers who export will remain under a zero-rating regime, but those who sell locally will be taxed even if they are exporters. Under a zero-rating regime, exporters are exempt from taxes.
The tax relaxation is only for exports, not local sales as it is unfair to those who sell their products only in the local market, Dr Shaikh said. “This sector has a national duty to fulfill,” he said, referring to the economic difficulties faced by the government.
Earlier, the economist said Pakistan has one of the world’s lowest tax-to-GDP ratios because its rich don’t pay taxes. “This can’t work. We will change it even if we have to annoy some people,” he said.
Pakistan’s tax-to-GDP ratio or tax contribution to the economy is less than 11%. Only 2 million people file their income tax returns, of whom 600,000 are salaried people. Because of a low tax base, the government faces a big revenue shortage to pay its expenses and is left with little to no money to spend on development of people and infrastructure.
This fiscal year, the government will spend Rs2,900 billion alone in paying back interest on its loans. This amount is 52% of the Federal Board of Revenue’s tax collection target. It simply means that the government will spend more than half of its tax revenue on repaying its loans.
Choked on finances, the government is facing a deficit (loss) of Rs3,137 billion since its expenses exceed its revenues by as much.